Pentagon warns EU against blocking U.S. companies from defence pact

BRUSSELS, May 14 (Reuters) - A new European military pact risks shutting American companies out of defence contracts and undermining NATO, the United States has told the European Union, hinting at possible retaliation.

In a May 1 letter, the U.S. government said limitations under consideration on the involvement of non-EU countries in the European pact amounted to "poison pills".

"It is clear that similar reciprocally imposed U.S. restrictions would not be welcomed by our European partners and allies, and we would not relish having to consider them in the future," said the letter from two U.S. Department of Defense undersecretaries, Ellen Lord and Andrea Thompson, to the EU's foreign affairs chief, Federica Mogherini.

Any rules limiting U.S. defence contractors' participation would also amount to "a dramatic reversal of the last three decades of increased integration of the transatlantic defence sector," said the letter seen by Reuters.

The administration of U.S. President Donald Trump already warned EU governments in February last year that the United States should play a central role in the European pact.

But Trump's "America First" policy, problems for European firms breaking into the U.S. weapons market and years of wasted defence spending have been the main motivation for European efforts to better integrate its armed forces.

The U.S. letter, which warns Brussels against damaging burgeoning EU-NATO ties, is the most vocal U.S. opposition to the European Union accord signed in December 2017 to fund, develop and deploy armed forces together.

EU governments are trying to agree legislation on how to allow the involvement of non-EU countries, including the United States and Britain after it leaves the bloc, by June.

"RESTRICTIVE LANGUAGE"

As France and Germany seek to develop a next-generation European fighter jet, Washington said it noticed "restrictive language" in draft texts that failed to reciprocate U.S. openness to involving European companies in its contracts.

Officials at the European Union and the Pentagon were not immediately available for comment on the letter, which was first reported by Spain's El Pais newspaper.

U.S. concerns about being frozen out of the European pact, known formally as Permanent Structured Cooperation (PESCO) and its multi-billion euro defence fund, have sown confusion in Brussels, which is also the headquarters of U.S.-led NATO.

One European government official said the letter showed a "misunderstanding of how the European Union works" because the defence pact and fund were only one way to coordinate with the United States. "They are reading language into it (the pact) that fences the European continent off from American cooperation, and that is not true," the official said.

Unlike past attempts at European defence integration, NATO Secretary-General Jens Stoltenberg has publicly backed the defence pact as long as it does not lead to duplication.

Caught off guard by Russia's 2014 annexation of Crimea and facing threats ranging from state-sponsored computer hackers to militant attacks, EU governments say the pact is justified by EU surveys showing most citizens want the bloc to provide security.

In Libya in 2011, a Franco-British air campaign ran out of munitions and equipment and Europe was again forced to turn to the United States, in what is considered an enduring embarrassment for the EU, a global economic power. (Reporting by Robin Emmott Editing by Mark Heinrich)